Derivatives

[Mr.Positive]

Banks derivatives stacked in $100 dollar bills.

Pretty amazing the magnitude of this whole thing.

http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html

 

[Gaucho]

Private banks don't control inflation. That is called a central bank and that is the Government (people).

 

[Who Dares Win]

Private banks don't control inflation. That is called a central bank and that is the Government (people).

LOL thats a good one, even better than the one that you get women with flowers!

 

[Gaucho]

LOL thats a good one, even better than the one that you get women with flowers!

So who votes?

 

[Gaucho]

1. Inflation is caused by private and public banks alike, as well as the government, all though lending (Usury) and money printing.
2. The Federal Reserve is run by a conglomerate of banking institutions and their leaders.

Check your facts.

1) Inflation is caused by an expansion in the money supply or credit. Who regulates this? Yes, that's right, not private banks. Economics 101 on open market operations (money supply) and reserve requirement ratios (credit).

2) Federal Reserve decisions are controlled by their board, no, these are not private bankers, does Ben Bernanke work at Goldman Sachs? Ahhhh, no.

Check your facts bud.

 

[Mr.Positive]

1) Inflation is caused by an expansion in the money supply or credit. Who regulates this? Yes, that's right, not private banks. Economics 101 on open market operations (money supply) and reserve requirement ratios (credit). .

Deflation, is what's going to happen when all these derivatives implode. Then, we'll have QE3, then QE4, then hyperinflation because all faith will be lost in the currency.

Then, we'll have a new currency, backed by something, land, oil, etc.

 

[Gaucho]

Don't disagree in the long-run Mr Positive. History suggests no fiat currency system can work for good. It is a quick way for people to increase their standard of living and creates boom-bust cycles. The derivatives just add more complexity to an already unstable system.

 

[Mr.Positive]

Don't disagree in the long-run Mr Positive. History suggests no fiat currency system can work for good. It is a quick way for people to increase their standard of living and creates boom-bust cycles. The derivatives just add more complexity to an already unstable system.

I'm trying to understand just how derivatives fit in, it's very complex.

JP Morgan alone though, has over 70 trillion in derivatives. That's the size of the GDP of the whole world! Nobody can bail that out. We thought the IT bubble was big, and then the housing bubble...the derivative bubble seems to make those look tiny. Just massive, on a global scale.

I'm keeping one eye on the news, if I hear the term "derivative crisis". I'll know the house cards is finally coming down.

 

[don't]

all lending is NOT usury. Usury is "excessive interest rates". That is determined by WHOM? If the borrower agrees to the amount knowingly, the consequences SHOULD be on his head! The Federal Reserve is a PRIVATE corporation, not "the govt". Inflation is caused by all the pressure on pols to "buy off" those who vote for them, pay them off, etc. The pols then of course vote to expand this or that welfare item, when there's no real money with which to pay for it, or any of the other "goodies" that the gov't votes into being.

 

[Bible_Belt]

Derivatives are not evil as a concept. They include stock market option positions and commodity futures contracts. These are hedges against price swings up or down, depending upon the position you take. They are necessary and convenient financial insurance.

The problem comes in when there are not two sides to the derivative, like a put and a call on the options market. When there are two sides, as the value of one goes up, the other must go down. If all the banks had derivative positions like that, it would not be so bad. But the problem is derivatives that only have one side, like the credit default swaps and subprime mortgage collateralizations. In those, when they figure out that the market they just derived from is all smoke and mirrors, then the derivative market will crash accordingly, if not exponentially more so.

 

[Gaucho]

Private banks issue credit (which in turn expands the money supply). They are a piece in the inflation/deflation of a currency.

Officially, the Fed Reserve sets interest rates, but they cannot control what the banks actually lend, outside of rates and reserve requirements. And even those don't give direct control.

So, YES everyday banks ABSOLUTELY create credit AND have an impact on inflation.

I suggest you take some economics courses.




http://www.federalreserve.gov/faqs/about_14986.htm

I would like to point out the following paragraph from the fed reserves website.




Banks own the shares, and receive 6 percent a year for the dividends.

Sure sounds like a privately owned, profit centered business to me.

Check your facts BUD.

Private banks issue credit based on their allowable reserve requirement and prudential supervision (which is what Social Leper is talking about with Things like regulatory oversight, lending laws, etc also play a role), basically private banks are dictated as to how much credit they can create. And credit and the money supply are completely different, credit is not money, so no, private banks cannot expand the money supply, ONLY a Central Bank can expand the money supply. You obviously don't understand the difference between credit and the money supply. Private banks facilitate inflation, but this is Governed by the Central Bank.

Also, Central Banks do not set the interest rate, they only form a part of the inputs to interest rates. Most banks get their short-term liquidity from other institutions, do you know what LIBOR is? Inter-bank lending rates, hence in a financial crisis, the Central Bank can set rates at 0 and private banks can still go under.

Who controls monetary policy, yes the board of governers. We are talking about who controls monetary policy and you failed to highlight the crux of your quote "However, owning Reserve Bank stock is quite different from owning stock in a private company".

Board of Governors
Federal Reserve Board of Governors

The seven-member Board of Governors is a federal agency. It is charged with the overseeing of the 12 District Reserve Banks and setting national monetary policy. It also supervises and regulates the U.S. banking system in general.[71] Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms.[48] One term begins every two years, on February 1 of even-numbered years, and members serving a full term cannot be renominated for a second term.[72] "pon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified." The law provides for the removal of a member of the Board by the President "for cause".[73] The Board is required to make an annual report of operations to the Speaker of the U.S. House of Representatives.

The Chairman and Vice Chairman of the Board of Governors are appointed by the President from among the sitting Governors. They both serve a four year term and they can be renominated as many times as the President chooses, until their terms on the Board of Governors expire.[74]


Ahhhhh yep, the board controls the policy and the board is selected by the president who is elected by the people. All these 'private bankers' control the world are generally from ignorant wanna be against the Government left wingers who end up contributing nothing to the system. If there is a problem, it is that the capitalist system if flawed, not that some inner circle of private bankers are controlling the world.

I've got formal economic qualifications, worked in it for a decade and sat for lunch with a chairman of one of the worlds largest central banks, the ECB. You don't even understand the difference between credit and the money supply, so time to get back to introduction to macroeconomics before you start attempting to argue what you don't understand.

 

[Gaucho]

Derivatives are not evil as a concept. They include stock market option positions and commodity futures contracts. These are hedges against price swings up or down, depending upon the position you take. They are necessary and convenient financial insurance.

The problem comes in when there are not two sides to the derivative, like a put and a call on the options market. When there are two sides, as the value of one goes up, the other must go down. If all the banks had derivative positions like that, it would not be so bad. But the problem is derivatives that only have one side, like the credit default swaps and subprime mortgage collateralizations. In those, when they figure out that the market they just derived from is all smoke and mirrors, then the derivative market will crash accordingly, if not exponentially more so.

Exactly. Most people don't understand fiance and economics yet talk like experts. A lot of these things were created for good reason, derivative creation got out of control (no regulation) and even legitimate derivatives like crude oil futures liquidity now consists of about 90% speculation, which is excessive. Governments need more smart minds and the ability to regulate these industries, which are paramount to a capitalist system. With all the smart minds heading into funds management, you end up with a system of which the Government cannot keep up with and hence has troubles controlling. This is what causes such problems.

 

[Mr.Positive]

Exactly. Most people don't understand fiance and economics yet talk like experts. A lot of these things were created for good reason,

I guess I don't see the good in it. One bank, ONE bank, JP Morgan, owns the whole worlds economy leveraged in derivatives.

Add in the other banks, something like 14 times our whole world economy is leveraged!

How can this be good? For anyone?

I don't see anything good coming out of this. Greed makes it's profit, then collapses the waste on the rest of us.

Great job! Another economic day.

If this collapses, and that's the big "if". We haven't seen anything that could compare to it.

 

[Down Low]

Most people don't know jack sh1t about how finance.

Take a mortgage loan, for instance. The bank loans you money, but that money doesn't actually exist anywhere. They invent the money out of the blue that they loan you. Then you buy some land and pay to have a house built. The money you pay to the bank every month comes from your hard-earned wages: a real source. Then the bank cuts off your credit and you lose the house to them. They bleed you for some years, then take the REAL property that you paid to build. The banks arm-twisted us into building Las Vegas for them. And just about any suburb you can mention.

It's called "fictitious capital." It's how the world has run since the 1960s in general, and for some bigger businesses, since the end of the 19th Century.

Banks do create the money supply. Derivatives are just a fancy way to create more money out of nothing. In a world where men must have money, it's a way to send us all into mass peonage.

 

[Gaucho]

Funding for a presidential campaign do not mean the backers select the president. A lot of times, a president will not address the issues his backers want addressed (see George Soros for example who backed a large portion of Obamas last campaign yet does not anymore given his actions in his term in office). Obama is working for the people and he is selected by them. Evil corporations do not control the voting.

What is broad money, M1? How large is the money supply in the US? How large is the supply of credit? The supply of credit is over 10x the size of the money supply. Check how Ray Dalio, the largest hedge fund manager in the world makes his decisions.

http://www.bwater.com/Uploads/FileM...-for-understanding--ray-dalio-bridgewater.pdf

Read that, far more reputable than zerohedge (which is good, yet not transparent), this guy is the largest fund manager in the world, and explains very clearly the difference between the money supply and credit.

Open market operations Govern the money supply. Credit is something entirely different. But I won't argue with a guy who thinks he knows but clearly doesn't.

 

[Gaucho]

Most people don't know jack sh1t about how finance.

Banks do create the money supply.

Yeh, your talking about yourself.

Learn what the money supply is and what credit is. I posted a basic link to it above. They are different. Entirely different. One is the currency, one is actually created out of thin air. Amount of credit is over 10x the size of the money supply. Even a child can work out 1 does not = 10.

 

[Down Low]

Yeh, your talking about yourself.

Learn what the money supply is and what credit is. I posted a basic link to it above. They are different. Entirely different. One is the currency, one is actually created out of thin air. Amount of credit is over 10x the size of the money supply. Even a child can work out 1 does not = 10.

EXCEPT you miss the most important part. In my home-mortgage example, the previous land owner and the house-building company actually do get paid. Cash money no, but electronic money supply nonetheless. Where did this money come from? The bank invented it, out of the blue.

Then, some poor working slob gets reamed, and the REAL estate goes to the bank. Bingo! The bank creates REAL goods out of nothing. Or rather, it takes real goods from the rest of us. This foreclosed house is then sold and the bank realizes its gain. The bank's just too greedy to wait for it's thick slice to come from 360 monthly payments.

 

[synergy1]

Exactly. Most people don't understand fiance and economics yet talk like experts. A lot of these things were created for good reason, derivative creation got out of control (no regulation) and even legitimate derivatives like crude oil futures liquidity now consists of about 90% speculation, which is excessive. Governments need more smart minds and the ability to regulate these industries, which are paramount to a capitalist system. With all the smart minds heading into funds management, you end up with a system of which the Government cannot keep up with and hence has troubles controlling. This is what causes such problems.

lets be fair, most economists talk like experts ( Pual krugman), yet they don't have a clue either. As Greenspan said years ago before LTCM needed a bailout " I believe in the magic of the market place". This 10 years before the 2008 sub-prime mess. And its not like people did not see this coming. even before ron paul talked about a housing bubble in 2003, Brooksley Born spoke out against derivatives only to be told that these products were good for our (financial) economy.

Derivatives are basically unregulated insurance policies that required no capital reserve since they were unregulated. Thus they were leveraged highly. It doesn't take a rocket scientist to know that they were merely transferring risk rather than eliminating it - the yields were nice and a few people made a lot of money on these products which the rest of us ended up putting in over 600 billion dollars when banks were on the brink.

Listen, I am not expert here. However, there are enough facts to paint an accurate picture of what happened. The banks used dangerous products and bet the house - when it didn't work out, we all ended up footing part of the bill. My qujestion is this: what has changed since 2008? Are banks still using derivatives? When will it happen again?

 

[Gaucho]

lets be fair, most economists talk like experts ( Pual krugman), yet they don't have a clue either. As Greenspan said years ago before LTCM needed a bailout " I believe in the magic of the market place". This 10 years before the 2008 sub-prime mess. And its not like people did not see this coming. even before ron paul talked about a housing bubble in 2003, Brooksley Born spoke out against derivatives only to be told that these products were good for our (financial) economy.

Derivatives are basically unregulated insurance policies that required no capital reserve since they were unregulated. Thus they were leveraged highly. It doesn't take a rocket scientist to know that they were merely transferring risk rather than eliminating it - the yields were nice and a few people made a lot of money on these products which the rest of us ended up putting in over 600 billion dollars when banks were on the brink.

Listen, I am not expert here. However, there are enough facts to paint an accurate picture of what happened. The banks used dangerous products and bet the house - when it didn't work out, we all ended up footing part of the bill. My qujestion is this: what has changed since 2008? Are banks still using derivatives? When will it happen again?

This is my point, Governments/Central banks need to regulate the industry better. The best minds who actually see it coming (and hence profit) are all in funds management. Governments are reactive, not proactive. Hence why markets always look over the edge of the abyss before recoiling on Government intervention.

Derivatives are more of a modern problem, excess credit is the main one, at the point it becomes unservicable. Central banks should have this in their mandate along with inflation and unemployment.

 

[Gaucho]

I am familiar with the definitive terms of money and credit, but you side stepped my question regarding "money". You are saying that money is not credit, but do you know how it entered the monetary system? Where did the actual money come from? By what process does it enter our economy?

Let's be honest, we all vote, but it's pretty obvious who controls the strings. And all of the actions show it.

Have you ever worked in a job where you wanted to alter the way things were done but you couldn't, you were stuck in a system?

It is the architect of the system that must alter the moving parts. Everybody else is doing the best they can within the system and human nature will always include those with zero morals and exploit those they can. This will never change. This, the Government needs to regulate.

And money comes from the Central Bank, credit can be created by anybody but the Central Bank should be monitoring this more closely just as Bridgewater (largest fund in the world with around 120bil under management) does. Even the US Federal Reserve admits Bridgewater probably has more idea about the creation of credit than they do themselves. That's when you know the world is in trouble, particpants in the game are well ahead of the architects. Holes everywhere.